Oyo to reduce planned IPO amid tech headwinds

By Saritha Rai

Oyo Hotels is reducing the shares it aims to sell via a stock-market debut by about two-thirds, an effort by its founder to get the sale done even after tech valuations plunged.
The once-high-flying company is preparing to file a fresh initial public offering document as soon as this week, said two people familiar with the matter, who asked not to be named discussing internal matters. In the filing, Oyo will outline plans to sell just a third of the new shares it originally planned, eroding the amount of fresh capital it is expected to receive, one of the people said.

The plan shows how founder Ritesh Agarwal, 29, is trying to push through an IPO even at weaker terms to alleviate the financial pressures on the hotel and lodging booking company and himself. While the travel market has improved from the pandemic-era trough, Oyo — once valued around $10 billion as India’s Airbnb-equivalent — is still reporting mounting losses. Agarwal, meanwhile, took on billions of dollars of debt to boost his holding in the firm.

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The situation remains fluid and Agarwal or Oyo may still fine-tune their targets. It’s the second attempt at an IPO by the SoftBank Group Corp.-backed startup, after India’s stock market regulator raised multiple red flags on its earlier try in late 2021. Since then, valuations of technology companies have declined after accelerating inflation and rising interest rates left customers with less to spend and raised concerns of a potential recession.

No shares will be offered for sale by Oyo’s current investors, the people said. SoftBank holds about half of the startup, which is formally called Oravel Stays Ltd. and also counts Airbnb Inc. among its backers.

Oyo didn’t immediately respond to emails, texts and calls seeking comment.

The company was targeting a valuation of about $9 billion and updated its IPO documents in early 2022, but SoftBank later that year reduced its estimate for Oyo to $2.7 billion. The IPO valuation will be finalized through a book-building process nearer to the listing but it’s set to be far from what the company originally envisaged.

Agarwal, his holding company RA Hospitality Holdings and SoftBank Vision Fund remain the company’s three promoters with no change from its 2021 prospectus, according to one of the people. In 2019, Agarwal increased his stake to 33 per cent at a $10 billion valuation after taking on $2 billion of debt from Japanese lenders in his personal capacity with the backing of SoftBank founder Masayoshi Son.

That puts an urgency to Agarwal and Oyo’s SoftBank-dominated board to push through an IPO despite the punishing environment for tech IPOs and high-profile failures by Indian startups in the past 18 months, one of the people said. It would be a way to prove to the Japanese lenders that the founder and his startup are still worth billions.

When Agarwal got married this month in Delhi, Son took a rare trip from his Tokyo base to attend the celebration, accompanied by a bevy of SoftBank executives.

While Agarwal isn’t legally required to detail his personal debts in the IPO draft prospectus, he has been warned that regulators could still view that as an investor risk and indefinitely delay or reject the IPO on other technical grounds, one of the people said.

Oyo’s business has showed signs of recovery after the pandemic hammered the travel and hospitality industry. The startup has recast itself as a technology company, moving away from the asset-heavy, capital-intensive model across multiple continents which caused billions of dollars of losses, soured relationships with hotel owners and brought on court battles.

Agarwal established Oyo in 2013 after dropping out of college. He got the backing of SoftBank’s Son when he was 21 and the Japanese billionaire then took the founder under his wing, mentoring him and, later, providing personal guarantees for his multibillion dollar debt.